By Deepa Seetharaman and Laurence Frost
DETROIT/PARIS (Reuters) - Ford's <F.N> plan to cut jobs and close plants, once hailed as proactive, may not be enough to halt losses in Europe - where moves to rein in margin-crushing discounts have sparked a further sales plunge.
The U.S. carmaker initially earned investors' praise, and unions' wrath, for three plant closures and 6,200 layoffs designed to reduce excess production capacity, while rivals including General Motors <GM.N> put off the tough decisions.
But less than five months later, Ford's slumping sales show it still has some way to go and may struggle to win back business from competitors as it rebuilds profitability.
Ford's European slide since December, the worst three-month sales performance by a mass automaker, reflects efforts to end a discount blowout in which it hiked incentives to shift a glut of cars, according to industry insiders and unpublished data.
"They took longer to realise what was about to happen in Europe and react by reducing output," said a senior sales executive at a major European carmaker.
"Now they're facing difficult financial choices and have decided to optimise (margins) to the detriment of sales."
The euro zone crisis has shone a light on the region's overcapacity, which locks carmakers into paying high fixed costs to build fewer vehicles. Car sales fell to a 17-year low in 2012 and are expected to drop further this year.
In October, while GM was still in union talks over the possible closure of a German Opel plant after 2016, Ford announced the job cuts and the closure of factories in Genk, Belgium, and two British locations.
Ford was the second big automaker to act on overcapacity after PSA Peugeot Citroen <PEUP.PA>, whose solvency hangs on a rescue plan and plant closure unveiled three months earlier.
Ford said in October its 18 percent capacity cut would restore European profitability by mid-decade - provided it also defended its slice of the contracting market.
Further cutbacks could follow if the strategy falls short, executives have also warned.
Ford registrations tumbled 23.4 percent in the first two months of the year, more than twice the market decline, data from the European Automobile Manufacturers' Association shows. Its market share fell 1.2 points to 6.6 percent.
"The assumptions they made when they published their plan are no longer valid," said Philippe Houchois, a London-based analyst with UBS.
"You can only restructure when you've got a view of where the market is going."
Production in Genk, earmarked for closure next year, has only just resumed after industrial unrest following the restructuring announcement.
The disruption accounts for part of the dent in Ford's sales, which also suffered from distribution bottlenecks affecting the replacement of its Fiesta and Kuga models.
Ford increased its 2013 European loss forecast in January to $2 billion (1.55 billion euros) from $1.5 billion and predicted global pre-tax profit in line with last year's $8 billion.
Sales incentives come in many forms and are difficult to track. By some measures, however, Ford's European discounts significantly outpaced competitors' last year.
Ford's average retail incentives jumped more than 30 percent to top 2,750 euros ($3,500) per vehicle in the region's top five markets, according to data from an independent market research firm seen by Reuters.
The Ford figure was more than 500 euros above the mass-market average, which rose by a more modest 11 percent in Germany, Britain, France, Italy and Spain.
SHARE DOESN'T PAY
Company spokesman Mark Truby said he could not confirm the 2012 figures and insisted Ford's turnaround was on track.
"Our incentive levels are below industry average among Europe's volume automakers," Truby said.
"We're fundamentally transforming our business in Europe by significantly increasing new product, improving our brand image and addressing costs."
Ford of Europe President Stephen Odell said earlier this month the company was pulling back from "unprofitable channels" including sales to short-term car rental firms, even if it meant losing some market share.
"Share is interesting, but share doesn't pay the bills," Odell told reporters at the Geneva auto show earlier this month. "You have to have a business that's profitable."
The company's stock has risen 6.5 percent to $13.36 over the past 12 months, compared with a 16.4 percent gain for GM.
The new Fiesta and Kuga models posted stronger orders in February, Ford said this week, promising to revive deliveries ahead of the late-2013 arrival of its EcoSport mini crossover.
Carmakers from Daimler AG <DAIGn.DE> to Renault <RENA.PA> have also warned that European demand continues to weaken.
But responses have varied, with brands like Renault and Opel vowing to maintain market share while GM's Chevrolet and others give ground to defend prices.
Ford has yet to resolve the dilemma between pricing and market share, which may deepen as German premium brands compete more aggressively against its mid-market cars, some observers say.
"It's going to be difficult," said Tom De Vleesschauwer of consulting firm IHS Automotive. "It seems impossible in the current climate to have both."
(Additional reporting by Christiaan Hetzner in Frankfurt and Jennifer Clark in Milan; Editing by Helen Massy-Beresford)